Market Radar 22. May 2023

The U.S. dollar moves the markets

The strengthening of the US dollar has revealed five tendencies in the past trading week that could now determine the direction of the markets for the coming weeks:

1. Institutional investors finally preferred stocks quoted in U.S. dollars to stocks quoted in other currencies again.
2. The selling pressure for European and Asian equities was limited. Germany’s leading index, the DAX, reached an all-time high for the first time since November 2021 at the close of the day on Friday. So there was no shift from European equities to U.S. equities, but U.S. equities were increased without any real money being withdrawn from European equities.
3. A strengthening of the U.S. dollar increases risk appetite in the market breadth for U.S. equities beyond the tech giants Apple, Microsoft, Meta Platforms. The ETF for the Russell 2000 (IWM), which tracks US mid- and small-caps, now offers an opportunity for early trend detection on the long side: We locate a higher low in the chart of the IWM ETF for May 12. As long as the ETF does not fall below $171.65 (closing price on Friday: $176.11), US mid- and small-caps could now start a constructive bottom formation. If there is no strong selling pressure in these stocks this Monday and next Tuesday, the IWM ETF is likely to be upgraded to the daily stamp “bottom formation or sideways” from Wednesday – currently the IWM ETF receives the daily stamp “Under observation”.
4. Stocks that benefit from rising prices for gold, silver and copper continue to lose value because of the strength of the US dollar. Although the prices for gold, silver and copper recovered somewhat on Friday, the trend is currently clearly pointing in the direction of further falling prices. Silver mines (SI) and also the silver price (SLV) are now given the daily stamp “wait and see or speculate on sell-off” by Marktradar.
5. In the oil price, we now see an opportunity for early trend detection on the long side: the futures for oil (CL) with expiry June, July and August must now no longer fall below 70 US dollars if the downward trend is to be ended in the next few weeks. As the U.S. dollar rises, so do the purchase prices for oil in countries that are not part of the U.S. dollar currency area. This often, but not always, leads to less demand worldwide. Currently, oil and gas producers (XOP) show a bit more relative strength than oil and gas service providers (XES) in the chart. According to risk-on / risk-off logic, oil producers should now pull up the prices of oil and gas service providers. Ultimately, however, it all depends on the price of oil: a slide below $70 in CL futures would also drag down stocks from the oil sector.